Agony over: Mahindra buys Renault out of JV

The car is innocent.
— Anand Mahindra, explaining why it’s finis for a five-year, rocky alliance.

Finally, the end.

French carmaker Renault SA and Mahindra & Mahindra have called it quits, bringing closure to seemingly endless speculation.
M&M will buy Renault’s 49% stake for an undisclosed amount.

The buyout will be done within couple of months and Mahindra Renault Pvt Ltd will be renamed thereafter.

With this, M&M gets to tweak the no-frills Logan, which is facing issues of pricing and value proposition.

Sales of the vehicle have been continuously dwindling. over the last one year as buyers got worried about the negative publicity surrounding the joint venture.

Renault on its part will continue to support M&M and Logan through a licence agreement, which is for 5 years and is mutually extendable.

Renault will also continue to supply key components like the engine and transmission for the Logan. 50% of Logan components come from Renault and the completely knocked down (CKD) agreement with Renault will continue.

Rajesh Jejurikar, chief operating officer, M&M said the focus now will be to bring out a restyled Logan in 18-24 months.

The company will also look to increase localisation, which is currently at 60%, and work on a compact Logan less than 4 metres in length to take benefit of a lower excise duty — something M&M was strongly recommending during the restructuring talks between the two partners.

Jejurikar refused to disclose the amount M&M will invest in restyling and tweaking the length of Logan.

“The new agreement between M&M and Renault will give us the opportunity to chart out a new strategy to help drive the Logan brand in India, which will also include engineering requirements,” said Pawan Goenka, president (automotive and farm equipment sector), M&M.

He added that company’s in house R&D will help in making the technical changes and M&M will take help of Renault on engineering decisions.

As M&M goes solo in manufacturing passenger cars, Goenka is optimistic that Logan will be back in the game. “We are looking forward to turning this product around. We mutually agreed that the Logan will be more successful if it was completely under M&M. All functions like sales, manufacturing, dealerships, purchasing (now to be done by M&M and not Renault) will be integrated with M&M and this will optimise our cost.

“Nothing prevents us from partnering with anyone, though as of now nothing is on the cards,” Jejurikar said, when asked if M&M would consider partnering with any other player for the passenger car segment, now that it was on its own.

Goenka also said they were in talks with Renault over the possibility of using the Logan platform to build other products, which would be M&M products. “We are discussing to buy rights to build M&M vehicles. Renault will continue to get the royalty of Logan and any other car from that platform,” he said.
On the agreement with regards to manufacturing contract fee and how much MRPL was paying to M&M Ltd, Jejurikar refused to comment. The contract fee will be paid by the new company to M&M Ltd, he said.

MRPL exports Logan to South Africa, Nepal and Bhutan, of which Logan will be exported to South Africa with a Renault badge and to the other two counties with M&M badge.

On the structure of the new company, M&M officials said they will make an announcement later and for the time being Jejurikar will be overseeing the functions. The joint venture has debt close to Rs 370 crore, 49% of which Renault will pay. The gross turnover last fiscal was less than 500 crore and the losses in FY09 stood at Rs 300 crore-plus, largely due to impairment of assets. The new valuation is done on the impaired value of assets, which is 15% of the original value.

The joint venture was set up in 2005 with Mahindra, India’s largest utility vehicles and tractor maker, holding 51%. The no-frills Logan, which met with an enthusiastic response when it was launched in 2007, has suffered dwindling sales as it attracted a factory gate duty of 22% due to its 4 metres-plus length, making it expensive for its target customer segment. In 2009-10, it sold only 5,332 units, less than half of the 13,423 units it sold in 2008-09 and about a fifth of 25,891 units sold in 2007-08.